ECB's Draghi: OMT plan easing tensions on financial markets

European markets traded mostly lower on Wednesday as the ECB and the BoE decided to keep their interest rates unchanged. The euro hit 1.2993 soon after the ECB statement, retracing ground to the 1.2970/80 region at the time of Mario Draghi's press conference.

The ECB Governing Council unanimously decided to keep the main interest rate unchanged at 0.75% at their October monetary policy meeting. Speaking at the press conference following the meeting ECB head Mario Draghi commented on the considerations underlying the decision.

The president suggested that inflation should stay above 2% throughout the rest of 2012 and fall below 2% in the course of of 2013, assuring that the current inflationary pressures were temporary He said that economic growth would remain weak and recover very gradually, as tensions on financial markets weigh on sentiment.

Mario Draghi affirmed that that the ECB was acting independently and strictly within mandate and stressed that the euro was irreversible. He assured that the OMT program, which has helped alleviate tensions on financial markets in the past few weeks, was ready to be activated whenever necessary.

He urged EU officials however to “continue to implement the necessary steps to reduce both fiscal and structural imbalances and proceed with financial sector restructuring measures.”EU contemplating first-loss insurance for Spanish bonds

According to Reuters the Eurozone is considering the possibility of providing an insurance for investors who purchase Spanish government bonds. The estimated cost of such a program would be 50 billion euros per year. If implemented, 20 to 30% of each new Spanish bond would be guaranteed by the ESM.

By adopting this scheme the Eurozone would help Spain satisfy its funding needs, without overburdening EU taxpayers. Contagion to Italy would also be prevented.

Jamie Coleman from ForexLive comments: “The market seems to be warming to the idea of the potential for an EU bond insurance program for Spain. The fact that the ideas was proposed by the Finns, among the most hard-nosed of the European creditor nations, suggests it would be acceptable to the other Northern European members of the euro zone.”

Spain hits top end of debt sale target, sees yields fall

During a bond auction held by the Spanish Treasury on Thursday, the country managed to sell 3.992worth of 2014, 2015 and 2017 government bonds, at the top end of the targeted demand. 3- and 5-year yields fell in comparison with what the country had to pay at the previous auction

2-year bonds were sold at an average yield of 2.82%, slightly up from 2.79% registered last month. 3-year bonds were sold at an average yield of 3.956%, compared with 3.845% seen at the September 20 sale. Bonds maturing in 2017 yielded 4.766% (versus 6.459%).

IMF offers flexible aid for Spain

IMF head Christine Lagarde expressed her support for Spain in an interview for Le Figaro newspaper published on Wednesday, assuring that the organization could help the distressed country in a more adequate way.

She explained that there are different means of providing aid: "If Spain wants it, we could help in diverse ways, for example by simply auditing and monitoring reforms negotiated with its European partners without the IMF participating in financing." She added however that the IMF could play a role in financing as well.

As far as the Spanish bank recapitalization process is concerned, Lagarde said that the IMF was satisfied with the steps taken so far and encouraged the country's government to follow this path. She also added that an IMF intervention would be compatible with that of the ECB as both institutions operate on different levels.

Finally, Lagarde urged Spanish President Mariano Rajoy not to delay the bailout decision further, emphasizing that European officials should not postpone actions due to electoral reasons, in a clear allusion to the Spanish government possible hold back in wait for the passing of the Catalan and Basque elections.

Katarzyna Komorowska is the Macroeconomics Manager at FXstreet.com. Before joining the FXstreet.com team in 2011 she had worked as a freelance translator, press reviewer for the European Commission, and Business English consultant.

Legal disclaimer and risk disclosure

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these securities. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Forex involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility.

Stay Connected

Note: All information on this page is subject to change. The use of this website constitutes acceptance of our user agreement. Please read our privacy policy and legal disclaimer.
Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.
Opinions expressed at FXStreet are those of the individual authors and do not necessarily represent the opinion of FXStreet or its management. FXStreet has not verified the accuracy or basis-in-fact of any claim or statement made by any independent author: errors and Omissions may occur.Any opinions, news, research, analyses, prices or other information contained on this website, by FXStreet, its employees, partners or contributors, is provided as general market commentary and does not constitute investment advice. FXStreet will not accept liability for any loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use of or reliance on such information.